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AN INVESTIGATION INTO THE EFFECTS OF MERGERS AND ACQUISITIONS ON FINANCIAL PERFORMANCE OF COMPANIES IN KENYA (2003 - 2007

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BY KENNEDY MURITHI BUS-3-2371-3/07

A THESIS SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA –FINANCE) KENYA METHODIST UNIVERSITY

MAY 2010

DECLARATION I declare that this is my original work and has not been submitted for examination in any other University. Signature: ________________________Date: _________________________

KENNEDY MURITHI BUS-3-2371-3/07

This thesis has been submitted for examination with our approval as the University supervisors. Signature: ______________________Date: DR. T. M. NYAMACHE LECTURER, FINANCE KENYA METHODIST UNIVERSITY ___________________

Signature:

_________________________Date: _________________________

DR. FRANCIS MAMBO LECTURER, FINANCE KENYA METHODIST UNIVERSITY

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ACKNOWLEDGEMENT I would like to take this opportunity to express my sincere appreciation and gratitude to the following people and organizations without whose assistance, guidance and valuable support, this study would not have been successful.

Dr. Nyamache and Dr Mambo, supervisors, for directing and giving in-depth input for a comprehensive proposal.

All the staff and management of Kenya Methodist University, Nairobi Campus, who assisted and contributed to the success of this proposal.

To my colleagues in the MBA class for their support and team work that gave me a lot of support morally.

Finally, to Kenya Methodist University for having given me this opportunity to be part of this comprehensive Masters Degree Programme.

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DEDICATION To my wife Lydia and children Celine and Cynthia for their unwavering love, support, encouragement and dedication during the challenging and trying study.

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the study found that that mergers and acquisitions increase the market share of companies the firms entered into new geographical areas.
The research design was descriptive. comply with new legislation. acquire states of art and technology. The study also explored the impact of corporate restructuring to firms in Kenya. diversify business growth.This review also monitored the trend of amalgamations of companies in Kenya. From the findings. The specific objectives were: To determine the significance of mergers and acquisitions in the increase of market share of companies in Kenya. types of mergers and the importance of mergers on company performance were reviewed. Mergers and acquisitions also assisted in the
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. the nature of mergers and acquisitions. The focus was between the fiscal years 2003 to 2007. In the same section. to find the role the mergers and acquisitions play in achieving and enhancing profitability in companies. The design was appropriate to the study as it sought to obtain complete and effective corporate restructuring in Kenyan firms. and to determine the benefits of synergy that is achieved once companies adopt mergers and acquisitions in Kenya. acquire brand loyalty and overcome entry barriers.
Literature was reviewed on effects mergers and acquisitions .ABSTRACT The general objective of this study was to establish the effects of mergers and acquisitions on financial performance of companies in Kenya. to establish the extent to which mergers and acquisitions assist in the attainment of returns on investments.

achievement of synergy and return on investment. the study also concludes that the benefits of synergy that is achieved through adoption of merger and acquisition were. profitability of the company.
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. acquire brand loyalty and overcome entry barriers. increased market share. complying with new regulation .attainment of returns on investment in companies. acquiring state of technology. The study also established that there exist positive relationships between merger and acquisition and predictor factors which are market share. diversification of risk.

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. Market capitalization: The total market value of a company at the bourse. Agency problems: Agency problems arise when managers own a fraction of the ownership of their firm.LIST OF OPERATIONAL TERMS Horizontal mergers: It takes place between firms that are actually or potentially competitors occupying similar positions in the chain of production. Conglomerate mergers: This is a merger between firms that are neither competitors nor potential or actual customers or suppliers of each other. Vertical mergers: It takes place between firms at different levels of production.

............49 Table 8: Whether the Firm Was Subjected To Appeal to the Tribunal......................................................................................................................................52 Table 4.........................................................47 Table 4....................3: Legal structure of the firm..................4: Classification of organization in terms of ownership...................................................5: Sector of the organization..................................................45 Table 4........48 Table 4......52 Table 4.....................................................................47 Table 4.........................................................................LIST OF TABLES Table 4.............................................................50 Table 4..........2: Type of company.....51 Table 4............................................................................................10: The Degree of Involvement of Managers in the Acquisition or Merger Process ..........46 Table 4................11: Whether The Merger or Acquisition Undertaken the Firm Is A Success................................53 Table 4..................................................................12: Whether the Respondents Would Recommend a Merger or an Acquisition Again..............................................50 Table 4......6: The Sort of Merger or Acquisition That the Company Undertook.........54
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..14: Coefficients results...............44 Table 4.......13: Model Summary ......1: Education level .................................7: Reason/S Why the Organization Undertook the Merger.........................9: Whether the Firm Appealed To the High Court.....................................

.............................................36 Figure 4.............................................................1:-The Conceptual Framework......................................43 Figure 4............................43 Figure 4.......................................................2: Gender of the respondents .............................LIST OF FIGURES
Figure 2.3: Number of years of service ...................4: Ownership composition of company...........44
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Twenty years back.
There is no question that the pent-up demand for mergers has been brought back to life due to various factors such as convergence of low interest rates. and firms must adjust to new forces of competition from all directions. Today. The central strategy for most firms seeking Mergers and Acquisitions (M &A) is to seek to become the leading player in the product-market area of the strategic business unit. This has forced many of them to adopt many forms of restructuring activity. private equity and venture capital. Thomas and Weston(1992).0 INTRODUCTION 1.CHAPTER ONE 1. others fail. some M&As succeed. cash infusions from initial public offers and the perceived lack of organic growth opportunities due to a saturated marketplace.
The changing environments and the new forms of competition have created new opportunities and threats for business firms.1 Background of the Study The existing capabilities of a firm influence the kind of acquisition activity that will make business and economic sense. few companies made mergers a key element of their growth strategy. Mergers were an afterthought or episodic. debt availability. many companies look to achieve over 50 percent of their growth from M&As.
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. The change imperatives are strong. For large samples.

performance related incentives for mergers affect long term strategic variables which tend to be underestimated in much of the current empirical research. Anslinger and Copeland (1996) found out that samples of both corporate and financial buyers were able to achieve superior performance.But well conceived and effectively implemented M&A activity can yield returns to shareholders in excess of broad stock market indexes . Some acquirers have developed processes that facilitate the achievement of highly impressive track records.The Economist (2000). It is important to note the long-term effects on performance of merger deals. Kraillinger (1997). on average acquiring firms earn at least the same as their cost of capital.
The returns to acquiring firms are influenced by a number of factors. in at least twothirds of the cases. But studies also reveal that for the largest combinations during the period of strategic mergers (1992-98). which usually focuses on the short-term. economic effects.
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Other recent contributions suggest that long-term positive results for mergers are found for mergers across related product lines. value is increased. As mentioned by Chakrabarli and Burton (1983). For example. Many firms engage in a series of M&A activities over time thus making it difficult lo isolate the influence of a single acquisition event. If the time period over which the returns to the shareholders of acquiring firms includes a year or two before a specific acquisition.

Schumpeter (1942).
The probability of deals success goes up considerably when the key elements of postmerger integration are not only started before closing. the expected synergistic characteristics of mergers can contribute to improved performance through successful efficiency of operations. must be assessed and rolled into the synergy (and price to pay) calculation. especially the culture of the companies.Cosh. when the acquirer is deciding what to buy and what to pay. All of the elements that affect Post merger integration success. where increased size of companies and synergies. but a holistic approach to the deal. there should not be separate mergers and postmerger integration process. but when the likely risks and challenges of the integration are considered al the very beginning of the merger process. are positively related to long-term performance.
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. In essence. Another efficiency gain is achieved by combining complementary activities.
This effect of merging companies is a well-known classic issue. from strategy to target identification and valuation to integration.In these long-term effects.
Pre-merger planning has become especially critical as companies face pressure to deliver synergies as soon as possible.Hughes. . An example is combining a company strong in research with one strong in marbling. whereby economies of scale spread the large fixed costs of investing in machinery or computer systems over a larger number of units. through internal growth or by means of mergers.Lee and Singh(1989).

Berger (1999). reduced availability of goods or services. This form of merger is what is referred to as consolidation and a good example in Kenya is what the Coca Cola Company is carrying out by closing bottling facilities countrywide while expanding the company's bottling facilities in the city.
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. But some are likely to lessen competition. lower quality of products.This involves looking downstream al core processes and the nuts and bolts of how things work and in getting the people who know how to design and implement changes to these systems and processes involved up front. can lead to higher prices. Indeed.
With excess capacity in an industry. Most mergers actually benefit consumers by allowing firms to operate more efficiently. especially during the valuation stage. That. The larger firm has been able to achieve efficiencies not achieved by the separate units. breaking of trade barriers. free flow of capital across countries and globalization of business as a number of economies are being deregulated and integrated with other economies. and less innovation. Berger (1999). a number of industries formerly fragmented into many small-scale operations have been rolled up into larger firms.
Mergers have become popular because of the enhanced competition. Further. horizontal mergers can be used to shut down some high-cost plants to reduce industry supply and to increase efficiency in the remaining firms. in turn. Berger (1999). some mergers create a concentrated market while others enable a single firm to raise resources.

The factors favoring M&A in part relate to industry characteristics. Some surprises are still possible. It would be appropriate to adopt a definition of corporate strategy that helps in understanding issues in mergers and acquisitions. but they can be mitigated to some degree by appropriate due diligence. in contrast to the older system of increasing value through organic growth. Successful firms use many forms of M&A and restructuring based on opportunities and limitations. Indeed. 5
. This approach. Firms generally have internal development programs that are assisted by M&A activity. they are mutually supportive and reinforcing. Thomas and Weston(1992). but the cost of acquiring a company may be determined in advance. The characteristics and competitive structure of an industry will influence the strategy employed. is faster and in many cases cheaper.
Acquisitions and mergers have been popular methods of increasing the size and value of firms in modern times. An acquisition may also represent obtaining a segment divested from another firm. It is important to observe that one of the greatest challenges of corporate raiding has always been identifying the business area in which a firm should participate in order to maximize its long-term profitability . The logic is that the segment can be managed better when added to the activities of the buying firm. An acquisition generally involves paying a premium.
An acquisition enables the acquirer to obtain an organization already in place with an historical track record.Internal growth and mergers are not mutually exclusive activities. Some other advantages of M&A or external growth may also be noted.

Mintzberg and Quinn (1991). products. a merger or an acquisition may be the only available option. may in some cases require major resources which are beyond firm’s existing capability.
1. Strategy therefore. be an appropriate phenomenon for an organization to merge with or acquire a supplier of its raw material so as to guarantee availability and quality of such raw material or with a competitor so as to expand its market share or with another firm in order to comply with changes in legislation. Failure to perform is critical to a business as it is the major cause of business failure. technology. for instance.2
Statement of the Problem
Mergers and acquisitions have become the main means of attaining higher performance which is the main goal of any company. It may. resources or management talent as less risky and speedier than gaining the same objectives through internal efforts or organic growth. In such a situation. define strategy as a pattern or a plan that integrates an organization’s major goals.
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. therefore. policies and actions. Many managers will today regard buying a company for access to markets. Jemison and Sitkin(1986). Strategic decisions are based on building on or stretching an organization’s resources and competencies to create new opportunities or capabilities based on these resources. Many studies have been done in the area of M&A and results found from the studies have been inconsistent.

It is a law that is not in harmony with other sectional laws. Jemison and Silkin(1986). such as the Banking Act or the Trade Licensing Act. There are heavy and punitive penalties that are imposed by this law if any merger or a takeover proceeds without such an approval.
It is universally recognized that target identifications.
The study will tend to establish whether mergers and acquisitions always result in creation of shareholders' value. Any delays could make firms loose out on a merger opportunity. and forms their substantial costs relating to professional services. This Act has not been revised since 1989. The documented experiences would focus on factors that would include the approval processes and creation of shareholder value. and highlight barriers encountered from the perspective of those who have 'been there’. but are apparently not easily available. The law does not give a period within which ministerial approval should be given. The least a company could expect is to undergo an unfriendly approval process.There are quite a number of activities that go on behind the scenes of these mergers and acquisitions which need to be known. yet the dynamic changes in the market place demand that such a law should be reviewed from time to time. evaluation and screening takes up a lot of managers' time. The Restrictive Trade Practices. This study will document in a comprehensive manner the experiences of companies that have undergone mergers and acquisitions in Kenya. to support and promote effective competition . Monopolies and Price Control Act (Cap 504) is the principal guide that gives guideline and direct all processes of mergers and acquisitions in Kenya. The study would also give an insight of processes.
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Lichtenberg.In conducting this survey study among the Kenyan firms that have been involved in mergers and acquisitions activity. examined United Kingdom active acquirers and found some evidence that companies undertaking mergers earned a higher rate of returns than those that relied on internal growth.6 % (significant at 10% level).
Chesang (2002) .
Few studies have been done in Kenya concerning M&A and by conducting this research. this study will include an insight in the field of mergers and acquisitions as to the approval processes. the researcher will be able to know how companies perform. will be established and documented. and Siegel (1990). an opportunity to observe similarities or otherwise on these conclusions. on 69 firms.
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. They concluded that the market value of the acquiring firms rose on average by 5. They compared the performance of merged firms using profitability measures for 5 pre merger and 5 post merger years. They were however unable to identify a positive relationship between the level of merger activity and profitability. Frank. Her study did not cover mergers and acquisitions in other sectors of economy.carried out a study on Merger Restructuring and Financial Performance of Commercial Banking in Kenya. Consequently. creation of shareholders wealth and firms perception as regards factors that contribute to the success or failure of mergers and acquisitions among a broader range of Kenyan firms
A study was conducted by Lev and Mandelker (1972).

What is the significance of mergers and acquisitions in the increase in market power of companies in Kenya? ii. if any on the performance of the companies in Kenya. To what extent have mergers and acquisitions assisted in the attainment of returns on investment in companies in Kenya? iv.Many companies in Kenya use share price as their measure of performance and by which they are judged by investors and stockholders alike. This study will be set to find out the effects of mergers and acquisitions. What is the role that mergers and acquisitions play in achieving enhanced profitability of companies in Kenya? iii. What are the benefits of synergy that is achieved once companies adopt mergers and acquisitions?
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. The question for the study will therefore be: Would the performance of the firm be the same before and after merging?
1.3 Research Questions The research questions had been decided as follows: i.

1General objective To establish the effects of mergers and acquisitions on financial performance of companies 1. To establish the extent to which mergers and acquisitions assist in the attainment of returns on investment in companies in Kenya.
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.4. iv. ii.1.5 Significance of the Study This study will be of value to: Current investors and firms at the Nairobi Stock Exchange(NSE) and elsewhere and any other firm in competitive industry as it will add knowledge on the understanding of the importance of mergers and acquisitions in analyzing company performance.2 Specific objectives The specific objectives have been decided as follows: i.
Academicians and researchers by providing more insight into the relationship between mergers and acquisitions and company performance. To determine the benefits of synergy that is achieved once companies adopt mergers and acquisitions.4. iii.4
Objectives of the Study
1. To determine the significance of mergers and acquisitions in the increase in market share of companies in Kenya. To find out the role that mergers and acquisitions play in achieving enhanced profitability of companies in Kenya.

This study will also contribute to the bulk of knowledge and research at the university as it will be used as a basis of reference by students for any future study in the field of mergers.6 Scope of the Study The scope of this study covered all the companies in Kenya that have undergone mergers and acquisitions between the year 2003 and 2007.
To the executives and managers of the companies listed at the NSE. ii. Financial constraints: This restricted the scope of this study because of lack of sufficient funds. the researcher was compelled to take a case of only those companies that operate in Nairobi. the practitioners of management need to update themselves and their respective industries on the best practices required.
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. however. engaged the use of his personal savings and went for cost effective data collection tools and methods to cut on costs. Time factor: Due to the fact that the time allocated for this study was short. the study will cover all the companies which have merged and the relative performance. The researcher however. be on Nairobi since it is the capital city and most of the head offices are located in Nairobi. Emphasis was.
1. This however.7 Limitations of the Study The major constraints of this study were: i.
1. acquisition and restructuring of companies.As the environment is very dynamic. yielded reliable and valid results.

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Lack of cooperation: The researcher encountered a lot of resistance while carrying out this study due to the fact that the topic under study touched on the sensitive issue of mergers and acquisitions. The researcher overcame this limitation by accompanying each questionnaire with a cover letter informing the respondents that the research study was purely for academic purposes and that the responses given would be treated with utmost confidentiality between the researcher and the respondent.

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CHAPTER TWO 2.0 LITERATURE REVIEW This chapter considers literature relevant to the subject under study. The main issues under review were; the nature of mergers, types of mergers and acquisitions, motives of mergers, importance of mergers in company performance, performance measures, market based valuation and the conceptual framework.

2.1 Nature of Corporate Restructuring Merger can be defined as any transaction that forms one economic unit from two or more previous ones. Takeovers and related activities in the 1980s are much broader in scope and raise more fundamental issues than previous merger movements. Thus the traditional subject of M&A has been expanded to include takeovers and related issues of corporate restructuring, corporate control and changes in the ownership structure of firms. Thomas and Weston (1992).

Many mergers have little or no negative impact on competition. Some may be procompetitive, for example, by enhancing production efficiencies resulting from economies of scale or scope. Mergers may also create new synergies, lead to innovation by combining talents of different firms, and provide additional resources to develop new products and services. Chakrabati and Burton (1983).

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Concerns about mergers, acquisitions and other corporate combinations are generally based on the same concerns about anti-competitive behavior. The main concern is that a larger merged firm may increase its market power. Hoskisson and Hitt(1994).

To the extend a merged firm becomes more dominant in a market, there is a greater potential to abuse the accumulation and exercise of market power to the detriment of competitors and customers.

2.2 Types of Mergers and Acquisitions/Corporate Restructuring Thomas and Weston (1992), found that business firms have used a wide range of activities in seeking to exploit potential opportunities. The major objective of mergers, tenders offers and joint ventures is to achieve expansion and growth. Merger is any transaction that forms economic unit from two or more previous separate business units. Tender offer is a method of making a takeover via a direct offer to target firms’ shareholders to buy their shares, while a joint venture is a combination of subsets of assets contributed by two (or more) business entities for a specific business purpose and for a limited duration. Each of the venture partners continues to exist as a separate firm, and the joint venture represent a new business enterprises.

Sell-off is a general term for divestiture of part or all of a firm by any one of a number of means e.g. sale, liquidation, spin-off, and so on. Spin-offs is a transaction in which a company distributes on a pro rata basis all of the shares it owns in a subsidiary to its own shareholders. 14

This creates a new public company with (initially) the same proportional equity ownership as the parent company. Divestiture is the sale of a segment of a company, ,assets, a product line or a subsidiary to a third party for cash and/or securities. Equity carved is a transaction in which a parent firm offers some of a subsidiary common stock to the general public to bring in a cash infusion to the parent no longer exists and only the new offspring survive.

Under changes in ownership structures, we have exchange offer, it’s a truncation which provides one class (or more) of securities with the right or option to exchange part or all of the holdings for a different class of the firm’s securities, e.g. an exchange of common stock for debt. It enable a change in capital structure with no change in investment share purchases here a public corporation buys its own shares by tender offer, on the open market, or in negotiated buybacks.

Going private is a transformation whereby a public corporation is converted into a privately-held firm, often via a leveraged buyout or a management buy-out Leveraged buyout is where the company is purchased by a small group of investors, financed largely by debt. We also have leveraged cash-outs. a defensive reorganization of the firm ‘s capital structure in which outside shareholders receive a large one-time cash dividend, and inside shareholders receive new shares of stock instead, and lastly Employee Stock Ownership Plans (ESOPs) – a defined contribution pension plan designed to invest primarily in the stock of the employer firm.

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. requiring a percentage (e.
Corporate control is another type of merger. 80%) of stockholders to approve a merger. golden parachutes which award large termination payments to existing management if control of the firm is changed and management terminated and poison pill provisions which give present stockholders the right to buy at a substantial discount the shares of a successor company formed by a stock takeover. These include: supermajority voting provisions.g. changes in management systems to improve revenue growth and to achieve efficiency increases including cost reductions. financial engineering. asset redeployment.
Proxy contest is a type of merger where an outside group seeks to obtain representation on the firm’s board of directors. staggered terms of directors which can delay change of control for a number of years. under corporate control we have premium buybacks it’s the repurchase of a substantial stockholder ownership interest at premium above the market price (called green mail) standstill agreement – these represent voluntary contracts in which the stockholder who is bough out agrees not to make further investment in the company in the future.Restructuring is the changes in product-market participation. The outsiders are referred to as “dissidents” or
“insurgents” who seek to reduce the control position of the “incumbents” or existing board of directors.
Anti takeover amendments are changes in the corporate by laws to make acquisition of the company more difficult or more expensive.

proxy contents are often regarded as directed against the existing management. Joint venture can be used to have the seller transmit knowledge about the operation and the buyer to learn more about what is being acquired.
It is clear from the above list that the strategies include expansion. Also of concerns are mergers between a firm which is active in a particular market and another which is a potential competitor. by defining they reduce the number of competitors and the relevant markets. contraction and efforts to improve the efficiency of operations.
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. when an activity does not fall into an effective organization structure of the parent. Especially promising in this connection are crossborder transactions (like the Nation Media Group in the East African region) either in the form of joint venture or mergers and acquisitions to achieve new products.Since the management of a firm often has effective control of the board of directors. Merger reviews typically focus on horizontal mergers since.2.
With regard to split-ups and spin-offs. a firm may improve motivations and performance by creating separate operations. and new geographic markets. new technologies. Joint ventures represent a flexible method of exploring new areas with partners whose capabilities are complementary.1 Horizontal mergers This takes place between firms that are actually or potential competitors occupying similar positions in the chain of production.
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2 Vertical merges This takes place between firms at different levels in the chain of production (such as between manufactures and retailers). The merger has reduced the number of competitors.
2. in many areas of South Africa. or a manufacture merging with a distributor of its products. A vertical merger can harm competition by making it difficult for competitors to gain access to an important component product or to an important channel of distribution.2. The elimination of head-to-head competition between two leading firms may result in unilateral anticompetitive effects. vertical mergers can also be of concern. Vertical mergers involve firms in a buyer-seller relationship.
An example is the acquisition of Amalgamated Banks of South Africa (ABSA). producers of CNN.a manufacturer merging with a supplier of component products. TBS. often leaving Barclays Bank as the only major bank in the area.In a horizontal merger. and other programmes.
Another example is the merger of Time Warner Inc. the acquisition of a competitor could increase market concentration and increase the likelihood of collusion. 18
. The USA Federal Trade Commission (FTC) was concerned that Time Warner could refuse to sell popular video programmes to competitors of cable TV companies owned or affiliated with Time Warner or Turner or offer to sell the programmes at discriminatory prices. This is called a “vertical foreclosure” or “bottleneck” problem.. (a big bank in South Africa) by Barclays Bank (another big bank). producers of HBO and other video programming and Turn Corp. Owino (2005).

2. The first is through internal growth. There are two broad ways a firm can grow.3 Conglomerate mergers According to Hamed (1999) Conglomerate Mergers between firms that are neither competitors nor potential or actual customers or suppliers of each other which vary in types and attributes and they may be pure or mixed in form whereby pure mergers have no economic relationships between the acquiring firm and the acquired firm.
That would allow Time Warner – Tuner affiliate cable companies to maintain
monopolies against competitors like Direct Broadcast Satellite (DBS) and new wireless cable technologies. The FTC allowed the merger.3 Motives behind Mergers One of the most common motives for merges is growth.
2. electronic products and advertising agencies. fertilizers products.. This is a combination of firms engaged in unrelated lines of business activity.Mantel and Eudema(2000). but prohibited discriminatory access terms at both levels to prevent anti-competitive effects . and of horizontal merger. 19
. Mixed mergers have aspects of both pure conglomerate merger.
2. This can be slow and ineffective if a firm is seeking to take advantage of a window of opportunity in which it has a short-term advantage over competitors. the Time Warner-Turner affiliates could hurt
competition in the production of video programming by refusing to carry programmes produced by competitors of both Time Warner and Turner. What’s more. for examples merging of different businesses like manufacturing of cement products.

but also give some support for similarities across the industries. the reason for this being to create understanding and furthermore illuminate the complexity of the problem.
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. Their analysis makes use of three different perspectives. Growth is essential for sustaining the viability. What are the motives that have made M&As such a widely used strategy?
Baker (1999) looks at the similarities within and across industries regarding merger motives.The faster alternative is to merge and acquire the necessary resources to achieve competitive goals. The results clearly demonstrate similarities in merger motives within the industries.
During the twentieth century. His empirical material consists of primary and secondary data collected from two merger in three industries respectively. Using a multi perspective approach they have come up with a number of motives which include:
Enhanced profitability: when two or more companies’ combine they result in rise in profit because they realize cost reduction and efficient utilization of resources. banking and information technology. manufacturing. dynamism and valueenhancing capability of a company. M&As have occurred in waves where times of low activity frequently have turned into periods of high activity.

the merged company generally has lower per-unit costs. the combined company can utilize the carry forward losses and save tax. energetic gains are often hard to realize. This is the new financial math that shows that 2+2=5. this is the exceptions rather than the norm. There are two types of synergy: that which is drive from cost economies and that which comes from revenue enhancement. whereby companies seek to lower their risk and exposure to certain volatile industry segments by adding other sectors to their corporate umbrella. A loss making company may not be in a position to earn sufficient profits in future to take advantage of the carry forward provision. that is.
Reduction in tax liability: Under the Kenyan tax law. as the equation shows a combination of two firms will yield a more valuable entity than the value of the sum of the two firms if they were to stay independent: Value (A+B)> Value (A) + Value (B) Although many merger partners cite synergy as the motive for their transaction.
Diversification of risk: Other motives for mergers and acquisitions include diversification.Synergy: another commonly cited motive for mergers is the pursuit of synergistic benefits. Cost economies are the easier of the two to achieve because they often involve eliminating duplicate cost factors such as redundant personnel and overhead. When such synergies are realized. a company is allowed to carry forward its accumulated loss to set-off against its future earnings for calculating its tax liability. Thus by combining with a profit making a company. However.
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company car etc) because the majority owners bear most of the cost. suggest that related acquisitions can have a positive effect on company performance if these acquisitions support innovative activities of firms.
The Stock Market is one of the most closely observed economic phenomenon in the world.Agency problems An agency problem arises when managers own only a fraction of the ownership of their firm. overview of studies on the economic effects of M&A performed during the late fifties and sixties reveals that there is substantial ex post evidence that mergers and acquisitions have positive effects on the performance of firms. 22
. This partial ownership may cause managers to work less vigorously than otherwise or to consume perquisites (luxurious officers.
2. Market indicators meet the demand for measures of stock market performance. Hoskisson and Hilt (1994).4 Importance of Mergers in Company Performance Mergers & Acquisitions can be seen as instruments used by companies externally acquire capabilities developed by their partners. emphasized that the market for corporate control and viewed mergers as a threat of takeover if a firm’s management logged in performance either because of inefficiency because of agency problem. As such they can have a positive economic effect on companies that are active in the M&A Market. Manne (1965).
However. Such indicators quantify movements in stock market prices and act as a standard in evaluating the returns on money invested in the stock market.

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. Most of those surveyed listed synergy as a leading motivation for both domestic and cross-border mergers.
They cite mergers as being important in increasing a company's focus and eliminating poorly performing units thus increasing managerial efficiency while creating a particular organizational structure at the same time. Synergies top the list of merger motives. seek tax advantages. restructure capital and resolve antitrust concerns.Stock market indices as aggregate measures are an instrument to meet the information requirement of investors by characterizing the development of global markets and specified market segments. Diversification was also identified as a good reason to engage in a merger.surveyed the executives responsible for corporations' M&A strategy. restructure capital and resolve antitrust concerns taking advantage of market conditions. seek tax advantages. taking advantage of market conditions. They also cite operating economics as an important merger goal. Patrick (1994) . Mergers assist companies to increase cash. A merger is believed to have a substantive effect on the stock market.
To better understand the importance of M&As in company performance.

The merger of a firm that provides essential inputs to other firms can be problematic if the supply of those inputs to other firms is threatened. market definition is often the key factor in determining whether a merger is anti-competitive.2. competition authorities may prohibit mergers or approve them subject to conditions. the merging firms may he considered to be competitors.4. Sherman (1998. On the other hand. As part of their review. For example.Blair(1993). If a market is defined broadly. acquisitions and some other corporate combinations require prior review and approval in some jurisdictions. A narrow definition could lead to a conclusion that the merged entity would have excessive market power in a smaller market. A more narrow market definition may result in a determination that the firms operate in different markets. Such a merger might be reviewed in order to ensure that adequate safeguards are in place to protect competing ISPs.
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.)
In the context of a merger review. the merger of a dominant local provider with a major Internet Service Provider (ISP) can raise concerns about whether other ISPs will obtain local access services on fair and non-discriminatory terms. a broad market definition could lead to a conclusion that the merged entity will face sufficient competition from other firms in the market. Mergers are usually only prohibited or subjected to conditions if the authority concludes that the merger will substantially harm competition.1
Merger analysis
Large mergers.

Finally. by reducing the number of firms participating in a market. The determination of market share will have a direct bearing on an assessment of market power and the potential for abuse of market power by the merged entity. it may also prove difficult lo determine
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. but also firms which could be expanded to enter it. substantial efficiency gains or other public welfare gains could support approval of a merger even where anti-competitive risks are identified.The second stage of the analysis is the identification of firm competing in the relevant market and their market shares. These will be balanced against any anti-competitive effects which have been identified in the earlier stages of the review. attention will typically focus on the establishment or increase of the dominant position by the merged entity. The evaluation of barriers to entry is an important aspect of merger review. In practice. it is difficult for a competition authority to qualify the positive and negative aspects of the transaction and arrive at any verifiable net effect. In this stage. the analysis concludes with an assessment of any efficiency to be realized as a result of the merger. There may also be concerns that the merger. The evaluation of market participants includes not only firms which actually participate in the relevant market. A finding that there are low barriers to entry can help justify a merger.
Theoretically. will create conditions which make anti-competitive agreements among them more likely.
In assessing the potential adverse effects of a proposed merger. the objective is to assess efficiency or other welfare gains which can be projected to result from the merger.

In exceptional circumstances. examined 39 companies which had undertaken large and or persistent mergers in the period 1954-1965. transactions of this sort should be carefully evaluated. For instance. This being the case a merger of these two firms is expected to lead to improved performance. but does not always have a long-term negative effect on the economy.4. Kouhm (1986). Bankruptcy is painful for shareholders.
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. Early literatures on mergers suggest synergistic motives as the main rationale behind merger activity.how any efficiency or other welfare gains will be distributed between the producing firm and its customers. Similarly difficult is the development of any means to ensure redistribution of efficiency gains to broader public advantage. a merger which would have. A study conducted by Jong (1976). The competition authority may be persuaded that the public interest is better served by a merger than by the failure of one of the merging entities.
2. He concluded that the most that can be said there is no evidence from the sample that merger intensive firms have higher profitability than the average industry. observes that acquiring firms tended to be faster growing than firms in their respective industries.anti-competitive effects may be permitted where one of the merging entities is in severe financial distress.2 Empirical studies of mergers. However. Sometimes the merger is not the best solution. it may be that another firm could expand productive capacity using the assets of the failing firm and that public welfare would be better served by this alternative solution.

concluded that conglomerate mergers satisfied the desires of managers for larger firms but did not increase earnings or market prices. 2.
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.Reid (1968). It is standard practice in jurisdictions which impose merger review to require merging parties to submit advance notice of the proposed transaction.4.3 Information in merger review As part of the merger review process. The information disclosed in the pre-merger notification will normally be used to determine if any anti-competitive concerns are present and whether to proceed with a more detailed review of the proposed transaction. the merging firms must normally provide information to the reviewing authority. it will obtain more information from the merger participants. it can therefore be observed that results are not similar and thus there is need to carry out further research in this area. From the above empirical studies done in the field of M&A. This process concludes with a determination by the reviewing authority whether to proceed with a more detailed investigation.
Singh and Montgomery (1987). The initial information filing typically triggers a waiting period. in a study carried for the period 1958-1968 found that conglomerate as a group raised the depressed pre merger rates of return on total assets up to the average for all firms. during which the reviewing authority will be entitled to request further information.
If the competition authority decides to proceed with a further investigation.

market shares. requiring dissolution of the merged entity.
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. suppliers. influence of potential competition (including foreign competition). with permission to proceed with the merger in other respect. pace of technological or other change in the relevant markets. customers.Additional information is usually gathered from third parties such as competitors and customers. financial performance. Activity of competitors and competitors' market shares. Three types of remedies are typically used to achieve this goal: Inhibition / Prohibition /Dissolution The first remedy involves preventing the merger in its entirety.4
Merger remedies
The goal of merger control laws is to prevent or remove anti-competitive effects of mergers. or if the merger has been previously consummated. Nihat. a competition authority will normally seek information about matters such as the following: Products. The merged firm might be required to divest assets or operations sufficient to eliminate identified anti-competitive effects.
Partial Divestiture A second remedy is partial divestiture. and its impact on competition and nature and degree of regulation in the relevant markets. of substitute products.
2.Eric and Roll (2004).4. The quality of a merger review will depend heavily on the quality and range of information available lo the reviewing authority. Commercially sensitive information is also generally protected from public disclosure during a more detailed review.

Behavioral remedies require ongoing regulatory oversight and intervention. Structural remedies are often more likely to be effective in the long run and require less ongoing government intervention.
2. This can be achieved through a variety of one-time conditions and on-going requirements. The first two remedies are structural. Nihat et al (2004). It keeps changing on a daily basis subject to changes in share price.5 Performance Measures Sharpe et al (1999). It is also the total market value of all quoted companies at the stock exchange.Regulation /Conditional Approval A third remedy is regulation or modification of the behavior of the merged firm in order to prevent or reduce anti-competitive effects. Turnover This is the total number of shares traded at the stock exchange. Partial divesture can reduce or eliminate anti-competitive effects while preserving some of the commercial advantages of a merger.
Partial divestiture or behavioral constraints are less intrusive in the operation of market than preventing a merger from proceeding or requiring dissolution of a previously completed merger. It is computed as the prevailing share price times the total number of shares. and the third remedy is behavioral.
Market capitalization This is the total market value of a company at the bourse. 29
. lists the following as the other measures of performance.

Price to Earning Ratio (P/E Ratio) Earnings of a stock divided by its price is what one gets in return. This ratio tells one how cheap or expensive a stock is in the market place compared with its peers or against other stocks in other industries. the better.
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. but as a thumb rule. It is very dynamic and keeps changing all the time. Simply this is the net tangible assets attributable to the ordinary shareholders divided by the number of shares in issue. However NAV is fairly descriptive in the case of property companies that tend to have low earnings compared with their asset value. the higher the EPS. Net Asset Value per Share (NAVPS) The NAVPS is calculated by dividing the total net assets (fixed assets plus net current assets) by the number of shares outstanding as at the end of that year.
Earnings Per Share (EPS) This is calculated by dividing the net profits alter tax of a company (less any dividends on preference shares that the company may have paid) for a given year or period by the number of equity shares outstanding at the end of the year. Net Asset Value (NAV) is of little use in investment decisions as in most cases it will usually be: well below the value calculated using earnings yield.Share price This is the value of a company's share at a given time. The EPS does not reveal the quality of earnings.

This ratio is obtained by dividing the current market price of a share by its issuing company's annual earning per share or the market capitalization to the entire net profit (total earnings). the P/E is 35.1 Other measures of performance By relating share prices to their actual profits. A lower IVB ratio could mean that the stock is undervalued. For example. it could also mean that something is fundamentally wrong with the company.5. the Price to Earnings ratio (P/E) highlights the connection between share prices and recent company performance. historically high. However. the P/E rises.
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.
Price-To-Book Ratio (IVB Ratio) A ratio used to compare a stock's market value to its book value. But if stock prices gain in value and earnings remain the same or go down. It is calculated by dividing the current closing price of the stock by the latest quarter's book value (book value is simply total assets minus intangible assets and liabilities). 2. This ratio also gives some idea of whether you're paying too much for what would be held if the company went bankrupt immediately. if a stock price was Kshs70 and it got Kshs2 in earnings. If earnings move up with share prices the ratio stays the same.This ratio indicates how many years it would take one to recoup one's investment in a stock at current market price if the company's performance was to stay frozen at the current level.

they are typically the most difficult to quantify. ROA is displayed as a percentage. Return on Equity (ROE) This is a measure of a corporation's profitability. calculated as: Net Income Shareholder's Equity The ROE is useful in comparing the profitability of a company to other firms in the same industry.
Net Income Total Assets Note: Some people add interest expense back into net income when performing this calculation because it measures operating returns before cost of borrowing. but because many of them may be long term.
Return on Assets – (ROA) A useful indicator of how profitable a company is relative to its total assets.
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. Calculated by dividing a company's annual earnings by its total assets. The intangibles are sometimes the most important benefits.Return on Investment (ROI) The monetary benefits derived from having spent money on developing or revising a system.

They try lo give an estimate of their fair value.6 Market Based Valuation There are several methods used to value companies and their stocks. The general definition for ROIC is as follows:
Net Income -Dividends Total Capital Total capital includes long term debt and common and preferred shares. called income valuation or discounted cash flow method. some of the methods of stock valuation are:
Fundamental criteria (Fair value) The most theoretically acceptable stock valuation method.
2. In some cases an asset valuation is also made. This theoretical valuation has to be perfected with market criteria. involves discounting the profits (dividends. earnings.
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.Return on Investment Capital – (ROIC) A calculation used to determine the quality of a company. cash flows) the stock will bring to the stockholder in the foreseeable future. by using fundamental economic criteria. The discount rate normally has to include a risk premium. as the final purpose is to determine potential market prices. and a final value on disposition. According to Thomas and Weston (1992).

On the other hand. the listed price will be close to the estimated fair value.
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.
Market criteria (Potential price) Some feel that if the stock is listed in a well organized stock market. a coefficient that bridges the theoretical fair value and the market price. It links the estimated economic value (fair value) and the stock market price. it will provide a "termination value" rather than the "ongoing operations value" obtained from the income valuation method. usually between . taking into account market behavioral aspects. This is called the efficient market hypothesis. market criteria also has to be taken into account (market-based valuation).This entails analyzing the assets and liabilities of the firm. This type of valuation is typically done if the company is expected lo cease operations. Valuing a stock is not only to estimate its fair value. studies made in the field of behavioral finance tend to show that deviations from the fair price are rather common. with a large volume of transactions. in addition to fundamental economic criteria.3 and 3. One of the behavioral valuation tools is the stock image.
A stock image is a stock valuation coefficient. This coefficient. but also to determine its potential price range. and sometimes quite large.
Thus. is related to the stock behavioral category.

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. but instead use charts to identify patterns that can suggest future activity. future growth. return on equity. a technical analyst would sit on a bench in the mall and watch people go into the stores. to the financial condition and management of companies. study the product that is being sold.Technical Analysis This is a method of evaluating securities by analyzing statistics generated by market activity. earnings. and then decide whether to buy it or not. a fundamental analyst would go to each store.
Fundamental Analysis This is another method of evaluating securities by attempting to measure the intrinsic value of a particular stock.
In a shopping mall. By contrast. his or her decision would be based on the patterns or activity of people going into each store. profit margins. such as past prices and volume. Technical analysts believe that the historical performance of stocks and markets are indications of future performance.
In other words. and other data to determine a company's underlying value and potential for future growth. Technical analysis does not attempt to measure a security's intrinsic value. Disregarding the intrinsic value of the products in the store. it is the use of real data to evaluate a stock's value. Fundamental analysis studies everything from the overall economy and industry conditions. The method uses revenues.

0 RESEARCH METHODOLOGY The section covers the research design. 3. A survey research seeks to obtain information that describes existing phenomena by asking individuals about their perceptions.Mugenda and Mugenda(2003). contributed to the success of failure in the implementations of these strategies. It also endeavored to establish the managers’ perception on whether the shareholder’s value was created or destroyed after the merger and acquisition activities were completed. The study also sought to document the management’s most or least important factors that in their view. This survey was a descriptive study that collected data from the firms that submitted Merger Notifications to the Monopolies and Price Control(MPC) in the years 2001 to 2004. The other factors that were sought and included in this study were the management’s perception in on importance of post merger acquisition activities. attitude.1 Research Design The design of this research was a survey. population and sample size.
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.CHAPTER THREE 3. This study documented the firm’s experiences in the mergers and acquisition processes. behaviour or values . data collection methods and procedures as well as data analysis.

neither agree or disagree.3. values and behaviour and to help minimize subjectivity and make possible use quantitative analysis. The likert scale was used to measure perception. agree and strongly disagree comprising of a continuum. locally. However. In this five point continuum. The firms that were listed in the MPC reports include either public. The available data at the time of this study was for the years 2001 to 2004. The distinction between takeovers and mergers in some years were not indicated. This data may have some limitations. Mugenda and Mugenda(2003). values 1. a census survey was carried out. It was therefore not possible to
expand the size of the population beyond this period.4. The respondent was to check one of the offered five fixed alternative expressions such as strongly disagree.ended and close-ended.2
Target Population
The population of the study comprised of all merger control notifications received and processed by the Commissioner of Monopolies and Prices in the years 2001 to 2004 (see appendix I). It was also appropriate to
incorporate some questions relating to the firms’ profile in the first part of the questionnaire. 38
. 2.3. attitude.3 Data Collection Methods and Instruments Primary data was collected using structured undisguised and self-administered questionnaire. the target population for this study comprised 71 companies. The questions were both open. foreign owned or both although no distinction has been made. private. agree.5.
3. Consequently. were assigned. The researcher felt that the respondents had practical experiences on the full process of mergers and acquisitions which helped crystallize their opinion.

It was therefore. The questionnaires were distributed through postal mail with an enclosed self-addressed return envelope to help increase the response rate. determined by the favourableness or unfavourableness of the item . through the Chief Executive Officer (CEO). value will be created. The questionnaire was developed and consisted of three parts: The first part of questions was to tap into the relevant information and the profile of the respondents. The second set of questions sought to establish the experiences of the firms in the merger and acquisition process and reasons for adopting these strategies. This assisted the researcher on the background information of firms that merged or acquired a target firm.These values expressed the relative weights and direction. It was therefore very difficult to convince the shareholders of the companies to merge or carry out an acquisition transaction if they do not foresee any benefits. appropriate to target the CEO. as a respondent to this questionnaire or a senior partner in a partnership business as they were the most appropriate persons to complete the questionnaire. were involved in a merger or an acquisition process. or there is an acquisition.
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. The researcher followed this with telephone calls and personal visits. The questions also addressed the approval process within the Competition Law. The Board of Directors therefore.
The shareholders of the company were convinced that once the businesses merge.Nachmias and Nachmias(2003).

4 Research Area The research covered all the companies in Kenya that had undergone mergers and acquisitions between the year 2003 and 2007.5 Sample Design and Size The researcher used purposive sampling where he took 40% of these companies for the study to obtain a sample of 28 companies. post merger activities.
3.The third part of questions sought to investigate the respondent's perception of mergers and acquisitions as regards the factors contributing to the success or failure of M&A. the
researcher purposively targeted two senior managers or senior partners in the partnership or merged companies and the Board of Directors through the CEO. The total number of respondents from the 28 companies was 2 respondents per company to yield a sample of 56 respondents. The study area was confined to Nairobi since it is the capital city and most of the head offices of the companies under consideration are located in Nairobi.
40
. However. There are 71 companies that have merged. 3. turnover of staff and creation of shareholders wealth as a result of mergers and acquisitions These are sets of questions that were designed to seek the perceptions of the managers. within the companies.

measure of central tendency such as means. pie chats and graphs. frequencies. mode and median by use of Statistical Package for Social Sciences (SPSS). Data analysis involved descriptive statistics such as percentages. The output was in form of tables.6
Data Analysis.
41
.3. Interpretation and Presentation
The returned questionnaires were checked for consistency and the correct ones were coded. Interpretation was done to allow for findings and recommendations.

Figure 4.while 40% of the respondents were females.those who had served their organization for a period of 5 to 10 years were shown by 30% of all the respondents .3: Number of years of service
35 30 25 20 15 10 5 0 0 to 5 5 to 10 10 to 15 a bove 15 yea rs percent
Source. Author (2010) The data in the above figure shows the study findings on the gender of the respondents . the study found that majority of the respondents were males as shown by 60%. from the findings of the study in the above table the study found that 36% of the respondent had served their organization for period of 10 to 15 years .
43
. Author (2010) On the number of years the respondents had served their respective organization.2: Gender of the respondents
40%
m le a fem le a 60%
Source.26% of the respondent had served their organization for a period of more than 15 years and 8% of the respondents had served their organization for a period of 0 to 5 years .Figure 4.from the findings.

the study established that this ranged between 5 to 13 outlets.1: Education level Frequency Diploma Degree Post graduates degree Total Source. On the number of outlets the organization had. Author (2010) The data in the above table shows the respondent education level. and Westland and Kariobangi area. industrial area.4% of the respondent had postgraduate’s degrees and 12. Figure 4.4: Ownership composition of company
60 50 40 30 20 10 0 loca l foreig n pa loca rt l/ pa foreig rt n
Percent 12 52 36 100
6 26 18 50
percent
Source. Upper hill. Author (2010)
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.5% of the respondents were diploma holders. On the years the organization was established.1% of the respondents.Table 4. the study found that most of the organization had their main offices located in Nairobi CBD area. 35. from the finding the study found that majority of the respondents had a university degree as shown by 52. On the location of the main offices of the respondent’s organization. the study found that this ranged between 1960 to 1993.

Bullion Bank. Paramount Bank. those that were partly local and partly foreign were shown by 36% of the respondent while those that were foreign were shown by 12% of the respondents. Brookside Dairies Ltd.2. Universal Bank.2: Type of company Frequency Privately owned Part private/part public Publicly owned Total Source. Glaxo Wellcome (K) Ltd. SCB . Unilever . Elianto (K) Ltd. Africa Online Ltd . 30 % of the respondents indicated that their companies were publicly owned and 16% of the respondents indicate that their company were privately owned. the study revealed that majority of the companies as shown by 52% of the respondents were locally owned. Toyota E.A. Author (2010) The data in the above table shows the type of company. from the findings in the above table the study found that majority of the companies were partly private and partly public as shown by 54% of the respondents. Crown Berger ltd . Lelkina Dairies Ltd .2 Firm’s Profile On the name of the firm before merger the study revealed that the names were. Barclays Holdings. Lonrho Motors E. Barclays Trust Investment . Best Foots Ltd. Net 2000 Ltd . Bidco(K) Ltd. Table 4. Smith Kline Beecham . Express Escorts. Ltd. Ltd . 4. Bank of 45 8 27 15 50 Percent 16 54 30 100
. Old Mutual As Asset Managers.On the ownership composition of the company. Securicor Security Services ltd. A.

India . Africa Online Ltd. Paramount Bank. Crown Berger. Smith Kline Beecham & Glaxo Wellcome (K) Ltd. Bidco (K) Ltd. the study established that majority of the firms were partly private and partly public as shown by 54% of the respondent. Toyota E. SCB & Bullion Bank.3: Legal structure of the firm Frequency Partnership Part private/part public Publicly owned Total Source. A. Old Mutual Trust Investment. On whether the respondent company had completed the merger or acquisition to its conclusion. On the name of the company after merger and take over. the study found that these names were. Bank of India Ltd. Author (2010) 9 27 14 50 Percent 18 54 28 100
On the legal structure of the firm. the study found that date of incorporation ranged from 30th June 1968 to 23rd September 1990. Table 4.28% of the respondents indicated that their firms were publicly owned and those companies that their legal structure was partnership was shown by 18%. Securicor Security Services.
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. India Finance Ltd and Bank of India and India Finance Ltd. On the date of incorporation of the company. the study revealed that all the companies had completed merger and acquisition to its conclusions. Brookside Dairies Ltd. Unilever Ltd. Ltd.

27 16 43 62.6% of the respondents indicated that their firms were in agriculture sector. Author (2010) On the classification of the firms in terms of ownership.Table 4. Author (2010) 22 8 13 43
Percent 51.8% of the respondents and those that were both local and foreign owned were shown by 37.2 100
Table 4.5: Sector of the organization Frequency Manufacturing Agriculture Service Total Source.8 37.2% of the respondents. the study found that majority of organization were in manufacturing sector as shown by 51.2% of the respondents while 18. those were in the service sector were shown by 37. from the finding of the study in the above table.4: Classification of organization in terms of ownership Frequency Percent Locally owned Both Local/Foreign Owned Total Source.2 100
The study also requested the respondents to indicate the sector in which their organization belonged.
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.2%.6 37.2 18. the findings of the study in the above table shows that majority of the firms were locally owned as shown by 62.

3 Experience of the Firm Whether the Firm Was a Merger (M) or a Takeover (T) According to the study. all the respondents (100%) reported that their firms were mergers. From the study. 10% of the respondents said conglomerate merger. most of the respondents as shown by 54% reported that their companies undertook a horizontal merger. while a small proportion of respondents as shown by 4% reported that their firms undertook a concentric merger.2. Table 4.6: The Sort of Merger or Acquisition That the Company Undertook Frequency Horizontal merger Vertical merger Concentric merger Conglomerate merger Total Source. Author (2010) 27 16 2 5 50 Percent 54 32 4 10 100
The study also required the respondents to indicate the sort of merger or acquisition that their companies undertook.4. 32% said vertical merger.
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.

7 41.of -the art technology and to comply with new legislation were shown by 60% each. According to the findings.0 66. 68.3 60.Table 4. 66.3% of the respondents said in order to increase market share. 78.of -the art technology To diversify in a growth business Overcome entry barrier Acquire brand loyalty Enter to a new geographical area Comply with new legislation Source.3% said to enter to a new geographical area.3 60. the respondents who said to acquire state.3 58.0 No 21.3 48.0
The study also sought to establish the reasons why the organizations took the merger.7% said to diversify in a growth business. 51.7% of the respondents reported that they took a merger in order to overcome entry barrier. Author (2010) 78.7 40.7: Reason/S Why the Organization Undertook the Merger Yes Increase market share Acquire state.0 33.7 51. Duration Taken To Receive an Approval from the Commissioner of Monopolies and Price According to the findings. while 41. the study found that it took the firms a minimum of 3 months and a maximum of 13 months to receive an approval from the commissioner of monopolies and price
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.3 31.7 68.7% said to acquire brand loyalty.7 40.

Table 8: Whether the Firm Was Subjected To Appeal to the Tribunal Frequency Yes No Total Source. while 38% reported that their firms did not appeal to the high court. Author (2010) 31 19 50 Percent 62 38 100
According to the findings in the above table. while 24% said that their firms were not subjected to appeal to the tribunal. the majority of respondents (76%) reported that their firms were subjected to appeal to the tribunal.9: Whether the Firm Appealed To the High Court Frequency Yes No Total Source. the study established that it took a minimum of 5 and a maximum of 12 months. Table 4. From the results. Duration It Take For the Appeal to Be Concluded By the Tribunal On the duration it took the firms for the appeal to be concluded by the tribunal.
50
. Author (2010) 38 12 50 Percent 76 24 100
The respondents were also asked whether their firms were subjected to appeal to the tribunal. most of the respondents as shown by 62% said that their firms appealed to the high court.

An Estimate of the Merger or Acquisition Budget The study also sought to establish the estimate of the merger or acquisition budget. the budget ranged between Kshs 500. According to the study.10: The Degree of Involvement of Managers in the Acquisition or Merger Process Frequency Very little Moderately A lot Total Source. Duration the Firm Took To Conclude the Negotiation with the Other Firm From the findings. it took the firm’s 3-6 months to conclude negotiations with the other firm.0 74. it took the firms that appealed to the high court a minimum of 2 and a maximum of 14 months to conclude the appeal in the high court. most of the respondents as indicated by 74% reported that they involved their managers a lot in the acquisition or merger 51
. From the study. where the authority blocks a merger the parties can appeal its decision to the High Court. the reasons why firms appeal to the high court include.0 100
The respondents were also requested to indicate the degree that they involved managers in the acquisition or merger process.0 16.Reasons for Appeal From the findings. Duration It Took To Conclude the Appeal in the High Court According to the findings. 000-2M. the merging parties may also challenge a merger decision imposing a remedy and complains by the minority shareholders of the involved firms. Table 4. Author (2010) 5 8 37 50 Percent 10. appeal against a board decision against them.

0 28. while 28% of the respondents felt that they would not recommend a merger or an acquisition again. Table 4. while a small proportion of respondents as indicated by 6% reported that the merger or acquisition undertaken by their firm was not a success Table 4. while 10% of the respondents said that they involved them to a very little extent. Author (2010) 47 3 50 Percent 94 6 100
From the findings in the above table. 4. The regression model was as follows:
52
.12: Whether the Respondents Would Recommend a Merger or an Acquisition Again Frequency Yes No Total Source. 16% reported that they moderately involved the.4 Regression Analysis A multivariate regression model was applied to determine the relative importance of each of the five variables with respect to establish the effects of mergers and acquisitions on financial performance of companies. Author (2010) 36 14 50 Percent 72.process.0 100
The respondents were therefore asked whether they would you recommend a merger or an acquisition again.2. From the study.11: Whether The Merger or Acquisition Undertaken the Firm Is A Success Frequency Yes No Total Source. the majority of the respondents as indicated by 94% termed the merger or acquisition undertaken by their firm a success. the majority of respondents as shown by 72% said that they would recommend a merger or an acquisition again.

profitability of the company. profitability of the company.574.further unit increase in achievement of synergy would cause an increase in merger and acquisition by a factor of 0. The established regression equation was Y = 0.418 0.839 . holding the predictors factors constants.574 X4 + 0.771 . it was also established that a unit increase in market share would cause an increase in merger and acquisition by a factor of 0. Error 0.978 .14: Coefficients results Model 1 (Constant) market share profitability diversification of risk Achievement of Synergy Return on Investment Source.216 .358. Achievement of Synergy and Return on Investment.087 .317 .938 . This infers that there exist positive relationships between merger and Unstandardized Coefficients B Std.061 0. diversification of risk .Table 4.314.314 .358 X3 + 0.771 X1 + 0. market share. merger and acquisition of companies would be 0.090 .319 Standardized Coefficients t Beta 1.358 .097 .
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.097 . Author (2010) a Predictors: (Constant).311 0.923 .771.833 1.833. also a unit increase in return on investment would lead to increase in merger and acquisition by a factors of 0. Achievement of Synergy and Return on Investment.312 Sig.216.097 . diversification of risk. there is a positive relationship merger and acquisition and the predictor factors which are market share.090 .216 X2 + 0.156 0.833 + 0. a unit increase in profitability would cause an increase in merger and acquisition by a factor of 0.097 .094 .967 .094 . From the data in the above table.091 .018 0.314X5 From the above regression model. also a unit increase in diversification of risk would cause an increase in merger and acquisition by a factor of 0.574 .

profitability of the company. diversification of risk.
55
. achievement of synergy and return on investment.acquisition and predictor factors which are market share.

Africa Online Ltd . A.CHAPTER FIVE: 5. the study found that date of incorporation ranged from 30th June 1968 to 23rd September 1990. Securicor Security Services ltd.2 Discussion The study established that the name of the firm before merger were. Barclays Holdings.A. Unilever Ltd. Smith Kline Beecham & Glaxo Wellcome (K) Ltd. Crown Berger ltd . India Finance Ltd and Bank of India and India Finance Ltd. the study revealed that all the companies had completed merger and acquisition to its conclusions. Bidco(K) Ltd. Toyota E. Securicor Security Services. Bullion Bank. Paramount Bank. Bidco (K) Ltd. On whether the respondent company had completed the merger or acquisition to its conclusion.1 Introduction This chapter presents the discussion of the findings from chapter four. Unilever . Ltd . SCB & Bullion Bank.0 DISCUSSION CONCLUSION AND RECOMMENDATION 5. Barclays Trust Investment . Paramount Bank. A. Smith Kline Beecham . Elianto (K) Ltd. Brookside Dairies Ltd. Bank of India . conclusions and also recommendations based on the objectives of the study. Glaxo Wellcome (K) Ltd. Express Escorts. Africa Online Ltd. Lonrho Motors E. Old Mutual Trust Investment. Universal Bank. Old Mutual As Asset Managers. Bank of India Ltd. On the name of the company after merger and take over. 5. Toyota E. the study found that these names were. 56
. On the date of incorporation of the company. Net 2000 Ltd . Brookside Dairies Ltd. SCB . Crown Berger. Ltd. Best Foots Ltd. Ltd. Lelkina Dairies Ltd . The study had sought to establish the effects of mergers and acquisitions on financial performance of companies.

the study established that majority of the firms were partly private and partly public as shown by 53.28.4% of the respondents indicated that their firms were publicly owned and those companies that their legal structure was partnership was shown . The study also established that the sort of merger or acquisition that their companies undertook were horizontal merger as shown by 54% . The study found that it took the firms a minimum of 3 months and a maximum of 13 months to receive an approval from the commissioner of monopolies and price. the respondents who said to acquire state.3% of the respondent. The study also found that majority of the firms was locally owned as shown by 62% of the respondents and those that were both local and foreign owned were shown by 38% of the respondents. 78% of the respondents said in order to increase market share. On whether their
57
. 52% said to acquire brand loyalty. According to the findings. those were in the service sector were shown by 38% of the respondents while 18% of the respondents indicated that their firms were in agriculture sector.of -the art technology and to comply with new legislation were shown by 60% each. 68% said to enter to a new geographical area. while 42% of the respondents reported that they took a merger in order to overcome entry barrier. vertical merger as shown by 32% 10% of were conglomerate.On the legal structure of the firm. while a small proportion of respondents as shown by 6% reported that their firms undertook a concentric merger. The study found that majority of organization were in manufacturing sector as shown by 54%. It was also revealed by the study that all firms their firms were mergers.
The study also establishes the reasons for organizations to take the merger. 66% said to diversify in a growth business.

the study found that majority of the respondent as shown by 62% said that their firms appealed to the high court. while 24% said that their firms were not subjected to appeal to the tribunal. On the duration it took the firms for the appeal to be concluded by the tribunal. On the duration it took the firms that appealed to the high court a minimum of 2 and a maximum of 14 months to conclude the appeal in the high court. On indicate the degree that they involved managers in the acquisition or merger process. The study found that the majority of respondents 76% reported that their firms were subjected to appeal to the tribunal. while 38% reported that their firms did not appeal to the high court. while 10% of the respondents said that they involved them to a very little extent. where the authority blocks a merger the parties can appeal its decision to the High Court. The study also established the estimate of the merger or acquisition budget.firms were subjected to appeal to the tribunal. It was revealed that most of the respondents as indicated by 74% reported that they involved their managers a lot in the acquisition or merger process. the study established that it took a minimum of 5 and a maximum of 12 months. On whether the firms appealed to high court. the budget ranged between Kshs 500. the merging parties may also challenge a merger decision imposing a remedy and complains by the minority shareholders of the involved firms. The reasons why firms appeal to the high court include. According to the study.
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. 000-2M. 16% reported that they moderately involved the. appeal against a board decision against them. It was also revealed that it took the firm’s 3-6 months to conclude negotiations with the other firm.

achievement of synergy and return on investment.574 X4 + 0.216.216 X2 + 0.314X5 From the above regression model.the study found that
the majority of the
respondents as indicated by 93. profitability of the company.3% termed the merger or acquisition undertaken by their firm a success.833.358 X3 + 0. a unit increase in profitability would cause an increase in merger and acquisition by a factor of 0. also a unit increase in diversification of risk would cause an increase in merger and acquisition by a factor of 0. majority of respondents as shown by 72% said that they would recommend a merger or an acquisition again. diversification of risk.314.358.771.On the general assessment of merger . On whether the respondents would recommend a merger or an acquisition again. This infers that there exist positive relationships between merger and acquisition and predictor factors which are market share. holding the predictors factors constants. while a small proportion of respondents as indicated by 6% reported that the merger or acquisition undertaken by their firm was not a success. while 28 % of the respondents felt that they would not recommend a merger or an acquisition again.771 X1 + 0.
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.further unit increase in achievement of synergy would cause an increase in merger and acquisition by a factor of 0. Y = 0.574. also a unit increase in return on investment would lead to increase in merger and acquisition by a factors of 0.833 + 0. it was also established that a unit increase in market share would cause an increase in merger and acquisition by a factor of 0. merger and acquisition of companies would be 0. The study also established a regression equation which was.

acquire brand loyalty .574 X4 + 0. profitability of the company. achievement of synergy and return on investment. acquire states of art and technology. acquire states of art and technology.771 X1 + 0. diversify business growth. overcome entry barriers. 60
. Y = 0. The study also established a regression equation for the study was. diversify their business growth. increased market share. diversification of risk.314X5 This infers that there exist positive relationships between merger and acquisition and predictor factors which are market share. the study also concludes that the benefits of synergy that is achieved through adoption of merger and acquisition were. The study also concludes that mergers and acquisitions assisted in the attainment of returns on investment in companies. comply with new legislation. The study concludes that as result of merger the company acquired larger market share thus increased profitability.3Conclusion From the above discussion the study concludes that mergers and acquisitions increase the market share of companies the firms entered into new geographical areas. 5.4Recommendation From the above discussion. comply with new legislation. acquire brand loyalty and overcome entry barriers. conclusion the researcher recommends that small companies should adopt merger and acquisition as this will help them in entering into new geographical areas. acquiring state of technology. The study recommends an in-depth study to investigate the challenges affecting merger and acquisition of companies.358 X3 + 0.5. complying with new regulation . acquire brand loyalty and overcome entry barriers . increase their profitability and return on investment.216 X2 + 0.833 + 0.

... The research topic is: . Yours sincerely.
Thank you..
The information sought from you will be treated with utmost confidence...
Kennedy Murithi
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.2007)”..O Box ....“An Investigation into Effects of Mergers and Acquisitions on Financial Performance of Companies in Kenya (2003 ..APPENDICES Appendix I: Introduction Letter
Kennedy Murithi P.. and results of this study will be available for your use/reference. NAIROBI Dear Respondent.
REQUEST TO FILL THE QUESTIONNAIRE FOR RESEARCH PURPOSE This is to request you to kindly fill in the attached questionnaire for research purpose.

................... ................................................................................... ... ......................................................Publicly owned ( )
Parastatal ( )
PART TWO – FIRM’S PROFILE (1)
Name
of the firms before the merger or take over............................... …………………………………………………………………………… (3) Name of the firm after the merger or take over..................................... please state the reason/s ...... (4) Did your company complete the merger or acquisition to its conclusion? (Tick appropriately)
Yes
No
If No............................................................................................................................................
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................................................ (2) Date of incorporation of your firm............................................................................................................................
....................................... then proceed and complete the remaining part of this questionnaire........................
If yes........

(f) Any other (specify)…...............of -the art technology (c) To diversify in a growth business (d) Overcome entry barrier (e) Acquire brand loyalty (f) Enter to a new geographical area (g) Comply with new legislation............................................ (a) How long did you take to receive an approval from the Commissioner of Monopolies and Price'? Months
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....(2)
What sort of merger or acquisition did your company undertake? (Tick appropriately)...... Horizontal Merger Vertical Merger Concentric Merger Conglomerate Merger
(3)
Please state reason/s why your organization undertook the merger
(Tick where appropriate) (a) Increase market share (b) Acquire state........... Approval Process within the framework of Kenya competition law......

......
(c)
If ye. how long did it take for the appeal to be concluded by the tribunal? Months
(d) Yes
Did you appeal to the High Court? (Tick appropriately)........ No
If yes......... Kshs
(c)To what degree did you involve your managers in the acquisition or merger process? (Please indicate by a tick on the table overleaf using the following scale)........(b)
Was your firm subjected to appeal to the Tribunal? Yes No
(Tick appropriately).............. reasons for appeal.............. Not at all Very little Moderately A lot Intensively 1
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.. (e) For how long did it take to conclude the appeal in the High Court? Months
Negotiation with the target firm (a) How long did your firm take to conclude the negotiation with the other firm? Months (b) Give an estimate of the Merger or Acquisition budget.....

General Assessment (a)Would you term the merger or acquisition undertaken by your firm a success? (Please tick where appropriate). Yes No
(b)Would you recommend a merger or an acquisition again? ( Tick where appropriate)
Yes
No
This area is only for those firms which have gone through a takeover. (a)How did you manage the takeover process? ( Tick as appropriate) Agreeing with major shareholder Buying stock in the market Obtaining proxies from the shareholders (b)State how your firm managed the resistance from other shareholders or management ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
THANK YOU FOR YOUR COOPERATION
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